Our strangely unbalanced world

Given its population and size in terms of GDP, Western Europe is overrepresented in modern international organizations

By Alberto Alesina and Francesco Giavazzi

ILLUSTRATION: YU SHA

The search for a new managing director of the IMF provides a keen reminder of how unjust today's international institutions are. Created in the postwar world of 1945, they reflect realities that have long ceased to exist.

The organization and allocation of power in the UN, the IMF, the World Bank, and the G7 meetings reflects a global equilibrium that disappeared long ago. After World War II, Germany and Japan were the defeated aggressors, the Soviet Union posed a major threat, and China was engulfed in a civil war that would bring Mao Zedong's (毛澤東) Communists to power. Much of the so-called Third World was either recently independent, or remained colonies; all of it was very poor.

There were 74 independent countries in the world in 1945; today there are 193. Outside of China, Cuba and North Korea communism is popular only in West European cafes and a few US college campuses. Germany is reunited and much of the Third World is growing faster than the First World, with computer software built in Bangalore and US graduate programs, including business schools, receiving thousands of application from smart Chinese students.

The whole world has turned upside down, and yet France and the UK, for example, retain permanent seats on the UN Security Council. This made sense in 1945; it does not today. Why France and the UK and not Germany or Japan, two much larger economies? Or India and Brazil, two huge countries?

Does it really make sense that two EU member countries hold a veto power on the Security Council while the Third World (outside of China) is completely unrepre-sented? The EU does not have a common foreign policy and it will not have one in the foreseeable future, but this is no reason to continue to provide a preference to France and the UK. If Europe is really serious about a common foreign policy, does the current arrangement make any sense? True, France and the UK do have the best foreign services in Europe, but this is reversing cause and effect. France and the UK maintain this capability because they continue to have foreign-policy relevance.

Europe's over-representation extends beyond the Security Council. While a European foreign policy does not exist, Europe has some sort of common economic policy: 12 of the 15 current members have adopted the euro as their currency and share a central bank. Nevertheless Germany, France, Italy and the UK hold four of the seven seats at the G7 meetings.

Indeed, the situation is even more absurd when G7 finance ministers meet: the central bank governors of France, Germany and Italy still attend these meetings, even though their banks have been reduced to local branches of the European Central Bank, while its president -- these countries' real monetary authority -- is a mere "invited guest." Shouldn't there be only one seat for Europe?

Of course, European leaders strongly oppose any such reform: they fear losing not only important opportunities to have their photographs taken, but real power as well. But how much power they really wield in the G7 is debatable: the US president, secretaries of state and treasury, and the chairman of the US Federal Reserve almost certainly get their way more easily in a large, unwieldy group than they would in a smaller meeting where Europe spoke with a single voice.

The current search for a new IMF head continues this pattern. The IMF managing director is a post reserved for a West European; the Americans have the World Bank.